Andrea Mandel-Campbell

July 13, 2007 (http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20071001_198708_198708)

Global strategies: Wake-up call

Can Canadians feel passionate about the economy, and more specifically, our companies? Are our hopes and dreams, our sense of national destiny, in any way bound up with entrepreneurial success and corporate conquest? For many, to even pose such questions is stunningly unCanadian. As author Michael Byers, in his recent book Intent for a Nation, judged with Supreme Court certainty: “Our distinctiveness — our love of country — is rooted in the non-economic compartments of our national psyche.”

It is often hard to say what exactly stirs our collective soul, but one thing is for sure: Canadians are remarkably disassociated from the business of the land — the wellspring for much of our “non-economic” pursuits and source of our enviable standard of living. We’ve never deemed it important that our political leaders understand the mechanics of the market. More importantly, we’ve never bothered to ask ourselves why the world’s eighth-largest trading nation has failed to produce so few internationally relevant companies or globally recognized brands. Canadians get more fired up about off-leash dog walking and house renovations than they do about our corporate global impotence.

But unless we start getting a little hot under the collar, we won’t have any companies to take for granted. Instead of worrying about zoning permits for a new kitchen addition, we’ll be wondering why our overly educated children are working in call centres. It’s already happening. In the past two years, a gob-smacking number of Canadian heavyweights — the corporate equivalent of the Toronto Maple Leafs, maple syrup and the Mounties — have been snapped up by hungry foreign acquirers. The natural consequence of our global myopia, the snake-like ingestion of the entire steel industry and the felling of once mighty giants, from Domtar to Inco to Falconbridge, has lopped tens of billions in market cap off the Toronto Stock Exchange, signalling the canary in the mine shaft is cold and stiff.

Luckily, there’s a simmering feeling — some might call it fatalistic despair — that something’s got to give. In a rare move, Thomas Caldwell, chairman of Toronto brokerage Caldwell Securities, took out full-page newspaper ads in July bemoaning the loss of so many icons as “one of the great corporate tragedies of our time.” Whether you buy into the hollowing-out crie de coeur or not, the very fact that Canadian companies are rarely ever the predators in the global consolidation game, preferring, as in the case of Bell Canada, to sit like pustules on the market until someone inevitably takes them out, is convincing evidence of a national malaise in which we are all complicit. “I never dreamt I would wake up in Canada and all these companies just wouldn’t be there anymore. The Emperor’s got no clothes,” says Caldwell. “We’re off base here, we’re all going down the wrong path.”

He’s right. Things have got to change. But before we go running off half-cocked, with calls to revive the Foreign Investment Review Agency to protect our precious natural resources in the name of “national security,” we need to figure how we got into this fix in the first place. Unless we are able to honestly look ourselves in the mirror and face down some inconvenient truths about how we’ve managed the jackpot of riches we’ve graciously been dealt, we don’t have a hope in hell of turning this ship around.

Many observers lay the blame at the feet of the coterie of bland, mild-mannered managers who sit in for this country’s corporate titans. Safely ensconced behind reinforced glass and steel turrets, the Bay Street Boys Club has managed to resist gutsy global manoeuvres despite sitting on stacks of cash and occupying an ideal launching pad from which to plot world domination. While companies from Swiss miner Xstrata to Belgian brewery InBev have become global contenders thanks to their cash-cow Canadian operations, the Club doesn’t want to rock the boat or the company share price — the acquisition of the ninth-largest bank in Wisconsin being the extent of its appetite for risk. Sadly, the strategy seems to pay off for execs, anyway. Michael Sabia will take home more than $40 million in salary, stock options and other payments when the Ontario Teachers’ Pension Plan purchase of Bell Canada Enterprises is complete — his reward for spending five years at the helm of one of the country’s most unimaginative and adrift companies.

There’s no doubt that CEO compensation packages are partly to blame for the lack of corporate gumption. But it’s more than that. The sheer pervasiveness of the problem speaks to more profound issues ingrained in our national psyche and reflected in the structural makeup of the economy. Eamon Hoey, a telecommunications consultant I interviewed for my book, Why Mexicans Don’t Drink Molson, grazed the very nub of it when he noted that Canadians fundamentally don’t like competition. Sure, we don’t mind competing against each other — in fact, we can be downright nasty amongst ourselves — as long as that competition remains within safe, hopefully restricted, domestic confines. We don’t like competing against outsiders, specifically Americans, because deep down, and even not so deep down, we figure we are bound to lose.

Growing up in the shadow of a giant is never easy, but it seems as if we bowed out from the very beginning, either by barricading ourselves behind the 49th parallel or waiting for the Americans to show up, develop our resources and give us a few jobs in return. Maybe that’s why so many iconic companies, literally built out of the hard rock of the Canadian Shield, can pass into foreign hands so quickly: they were never really Canadian to begin with. The industrial and resource might on which much of our global reputation and standard of living rests, the one we now lament is being frittered away, is largely the handiwork of American industrialists, bankers and self-made dream weavers. We dug the ore out of the ground, built the dams and forged the steel, but someone else imagined the possibilities, financed them and, ultimately, took the risk.

For Canadians, this easy money and fast-track development of such an inhospitable land was a drug too powerful to resist. But we hated the Americans, and, ultimately, ourselves for giving in so effortlessly. We’ve tried to compensate, to make ourselves feel better by staking out whole swaths of the economy with a “Canadians only” sign to prove we weren’t really skimmers, that we were serious about developing our own resources and building our own companies. The concept found its first embodiment back in 1879 and Sir John A. Macdonald’s National Policy: Canada could be self-sufficient in domestic trade, with Ontario exchanging its breadstuffs for Nova Scotia steel, while keeping American imports at bay with huge tariffs. In that way, Macdonald argued that Canada’s “infant industries” would finally have the room, protected from the harsh market elements, to grow. Except, it didn’t quite turn out that way. The high wall encouraged, some argue rather too conveniently, American transnationals to avoid the tariff barriers by setting up the Canadian-based operations that gave rise to manufacturing hubs such as Hamilton and Canada’s oft-lamented status as a branch-plant economy. As for the so-called infant industries, they never seemed to grow up.

Very early on, politicians twigged to the fact that what was supposed to be a virtuous circle, was, in reality, a self-defeating one. Without access to cheaper foreign inputs and raw materials, Canadian manufacturers, hemmed into the domestic market, were simply not competitive. But instead of tearing down the wall that hamstrung companies and kept them dependent on government handouts, the barricades were built higher and higher. The tariffs got progressively steeper while the underlying isolationist philosophy metastasized into new and different forms, from marketing cartels and foreign ownership prohibitions in a range of sectors, to the co-option of so-called cultural industries as the new infants to be coddled.

The natural consequence has been the creation of lead-footed oligopolies and monopolies from Bell Canada and Air Canada to the Big Six banks and the Canadian Wheat Board, whose inclination to gouge customers, bicker among themselves and squash potential challengers like bugs is only somewhat held in check by reams of outdated and increasingly unwieldy government regulation, bureaucratic commissions and slush funds for the short-changed. But at least we’ve managed to keep them out — and we haven’t had to get our hands dirty competing to do it.

We find some kind of existential comfort telling ourselves that if we are not entirely maîtres chez nous, we make the rules in at least a few strategic rooms — the kitchen, the living room and at least one bathroom. But at what cost? And just how sturdy is our grip in the domestic spheres we purport to control? From the rapid-fire sell-off of so many companies, from Alcan to Inco, founded by and still managed by Americans 100 years later, it would appear we picked up some excellent technical skills along the way, but we never learned how to lead. The head office was here, but we still needed babysitting.

The areas of the economy that have enjoyed protection from foreigners exhibit the same weakness. From the breweries to the banks, any number of Canadian firms could have been world leaders. And, yet, almost without exception, they have remained stubbornly domestic and, consequently, are now globally irrelevant. While Mexico’s Corona peddled its lightweight lager around the world, Molson and Labatt were too busy bickering over government perks and are now foreign controlled.

As for the banks, they were among the world’s largest 30 years ago. Yet the Hongkong and Shanghai Banking Corp. bought a bank in Buffalo before any of the Big Five could bring themselves to even cross the border. HSBC, once significantly smaller than its Canadian counterparts, now has the financial firepower to buy the entire Canadian banking sector in one go. At the moment it can’t, but with Canadian banks free to buy counterparts in places such as the United States to Thailand, the foreign ownership protections that shield them from takeover seem like scattered sandbags at the banks of a swollen river.

By eschewing competition for easy money at home (the banks rang in $19 billion in profits in 2006), we are passing up our slice of the global pie and the chance to build homegrown multinationals — our best bet for true economic independence and the source of invaluable skills and opportunities. While we rail against foreign raiders, the greatest irony is that we have treated ourselves far worse by underestimating ourselves, either by letting others do the heavy lifting for us, or ensnaring ourselves in such a web of government regulation and paternalistic bureaucracy as to quash any confidence we might have had in taking on the world.

It’s high time we cut the ties that bind, get out of our Canadian comfort zone and scrap it out for our rightful share of the myriad opportunities that international markets have on offer. To do that, we need to fundamentally rethink how we have managed our economy and challenge some perceived truths about the so-called Canadian Way, which all too often serves as a proxy for destructive policies meant to underscore our different, “non-economic” values. That means jettisoning the institutions and policies that either hamstring would-be entrepreneurs or make them complacent, encouraging potential multinationals to trade in their global aspirations for a quick easy buck.

It’s time to say adios to the Wheat Board and the various agricultural marketing boards and open up various sectors — from financial services and telecommunications to transportation and the media — to real, in other words, foreign, competition. It’s the only way our still suckling industries will ever mature. And the time to do it is now, while our economy is strong and we still have a handful of large companies worth saving — rather than waiting until the bitter end, when we find our backs against the wall. Because it is inevitable.Whether you believe it’s a flat world, or, as Roger Martin, dean of the University of Toronto’s Rotman School of Management, suggests, a spiky world, where industry and innovation will gravitate to specialized hubs, there is a window of opportunity that will only be open for so long. Martin foresees this current opening, a globalizing era which roughly began in 1980, snapping shut in 20 years. After that, there will be little chance to change our fate, at least for another century or so.

Canada has already missed the boat in a number of areas, and if we continue on our current path, the future is not particularly bright. As Howard Balloch, Canada’s former ambassador to China predicts in my book: “We’re determined to become the Argentina of the twenty-first century. We’re not under threat, we’ll just lose a little market every year, get a little smaller, another country will pass us on the scale and we’ll lose another hockey team.”

What’s particularly discomfiting is that politicians and bureaucrats, just like in Sir John A.’s day, know this and choose to sit on their hands. When I first started writing Why Mexicans Don’t Drink Molson, I assumed the majority were unreconstructed Trudeau-era economic nationalists. How else to explain the perseverance of antiquated constructs like the Wheat Board and the dairy marketing boards, byproducts of the Great Depression of the 1930s and Second World War austerity measures, and so obviously ill-suited to modern, globalizing markets? I was wrong. They see the destructive effects of these policies on a daily basis, and, if anything, they informedme, it was worse than outside observers like myself imagined.

The problem, I was told, was the lack of political payoff for making such wrenching decisions. While a small group of dairy farmers who benefit from subsidized prices and a wall of tariffs would hang politicians out to dry in their politically powerful rural ridings, city folk would not reward their local MPs for saving what’s left of the domestic dairy industry from global irrelevance and rescuing Canada from increasing isolation in global trade talks.

That may be true. But what I can’t seem to figure out is how come Australia has been able to confront these very same issues and actually make decisions? Wherever Canada continues to hem and haw, if it’s even acknowledging the problem, the Australians have already dealt with it — whether it’s dairy marketing boards, a national securities regulator, media ownership policy, energy regulation, forestry land tenure or financial services competition. The best we seem to be able to do is make a decision to study the Australian model three years after it’s been implemented. Our government appears incapable of stepping up ahead of the pack and formulating visionary, cutting-edge policies, suffering, it would seem, from the same leadership vacuum as the private sector.

If ever there was a time for leadership, however, it is now. As long as the world remained a rather disparate, disconnected place, we could get away with our coattail strategy. As we watch — in a kind of fascinated horror — private equity and sovereign wealth funds from Dubai to Singapore snap up assets around the world, our own vulnerabilities get harder and harder to hide. For a country that’s never really had much in the way of an “economic” strategy, it’s time we got one. “We have to have enough confidence in ourselves and our people to empower them,” says Caldwell. “Let’s make world-beater companies, because we’ve got so much going for us.”

“I’m not an economic nationalist,” he adds. “I’m an internationalist.” It’s something Caldwell is evidently passionate about. How about you?